IMT Ceres

Name Sukanya Saha
Question 1
The net income calculated through the Income statement of 2006(E) is 1534 which will be
transferred to the cash flow statement while calculating cash flow from operations.
The three major contributors for the change in cash flow are, working capital, more
investment into fixed assets and debt insurance.
Trend in Cash flow from Operating activity- Decreasing trend

Trend in Cash flow from Investing Activity-Increasing trend
Trend in Cash flow from Financing Activity-Initially increasing trend, but decreased over
the last year.
One of the reasons for decreasing trend in operating activity is the increase in Accounts
Receivable of the years.
One of the reasons for increasing trend in Investing activity is the reduction in the purchase
of fixed assets.
One of the reasons for increasing trend in the cash flow from financing activity initially was
more of debt insurance and less dividend paid and repayment of debt, however over the last
year the cash flow from financing activity decreased because of an increase in dividend paid
and repayment of debt.
Self-Financing of Investment –The CFI is less than the total of CFO and CFF so its self-
financed, the cash utilised for investment in fixed assets is generated partly from the cash
flow from operating activity and financing activity.
Funding of Investment-The funding of investment is party from cash flow from operations
and partly form cash flow from financing activity.
Cash Position of the Company-The cash position is negative as the company has spent more
cash that what it could generate through operations and financing activities.
Free Cash Flow-No free cash flow, as we have spent more in investing than the amount we
could generate through operations.
Question 2
Operating Working Capital
2002 2003 2004 2005 2006E
Accounts Receivable 3,485 4,405 6,821 10,286 14,471
Inventories 3,089 2,795 3,201 3,291 3,847
Accounts Payable 2,034 2,973 4,899 6,660 9,424
OWC 4,540 4,227 5,122 6,917 8,894
Operating Working Capital/Sales Ratio

2002 2003 2004 2005 2006E
Inventories 3,089 2,795 3,201 3,291 3,847
OWC 4,540 4,227 5,122 6,917 8,894
Sales 24,652 26,797 29,289 35,088 42,597
OWC/Sales 0.18 0.16 0.17 0.20 0.21
DSO, DPO and DIO

2002 2003 2004 2005 2006E

Inventories 3,089 2,795 3,201 3,291 3,847
Sales 24,652 26,797 29,289 35,088 42,597
No of days 360 360 360 360 360
COGS 20,461 21,706 23,841 28,597 35,100
Sales revenue per day 68 74 81 97 118
COGS per day 57 60 66 79 98
DSO 50.9 59.2 83.8 105.5 122.3
DPO 35.8 49.3 74.0 83.8 96.7
DIO 54.3 46.4 48.3 41.4 39.5
Long term credit to dealers will lead to increase in working capital as a result of which there
will be increase in operating working capital.
Question 3
At December
2002 2003 2004 2005 2006E
31
Capital Employed
Accounts
3,485 4,405 6,821 10,286 14,471
Receivable
Inventories 3,089 2,795 3,201 3,291 3,847
Plant,
Property, &
2,257 2,680 2,958 3,617 4,347
Equipment
(net)
Other Assets 645 645 645 645 645
Accounts
-2,034 -2,973 -4,899 -6,660 -9,424
Payable
Land 450 1,750 2,853 2,853 2,853
Total Capital
7,892 9,301 11,578 14,032 16,738
employed
Invested Capital
Current
Portion of
315 352 525 730 649
Long-term
Debt
Long-Term
3,258 4,400 5,726 7,123 8,480
Debt
Cash -705 -1,542 -1,818 -2,158 -1,955
Shareholders
5,024 6,091 7,146 8,336 9,563
Equity
Total
Invested 7,892 9,301 11,578 14,032 16,738
Capital
Question 4
2002 2003 2004 2005 2006E
Sales 24652.19 26796.93 29289.04 35088.27 42597.16

Cost of
Goods Sold 20461.32 21705.51 23841.28 28596.94 35100.06
Sales-COGS 4190.872 5091.416 5447.762 6491.331 7497.101
Variable
Margin 17% 19% 19% 19% 18%
Operating
Income 1641.448 2337.796 2407.758 2835.578 3018.235
Operating
Margin 7% 9% 8% 8% 7%
Net Profit 1190.712 1292.958 1278.969 1487.877 1534.087

Owners'
5,024 6,091 7,146 8,336 9,563
equity
Return on
Equity 24% 21% 18% 18% 16%
Earning after
tax before
interest 1377.712 1641.588 1719.082 2034.413 2192.188
Average
Capital 7892 8596.633 10439.85 12805.24 15385.01
employed
Return on
Average
Capital
Employed 17% 19% 16% 16% 14%
The trend of Return on Equity is decreasing.
The reason for the decreasing trend is due to the increase in the owners’ equity
over the years.
The trend of Return on average capital employed was initially increasing but
then remained static for two years eventually decreased.
The reason for the trend is due to the increase in total capital employed over the
years.
Question 5
Pros
1.Increase in credit terms to dealers will lead to increase in accounts receivable , hence
increase in operating working capital.
Cons
1.Increase in credit terms to dealers will lead to less cash in business.
2. The accounts payable payment term is lower than the accounts receivable payment term,
which means we are paying off our liability before receiving the amounts from receivable.
So this will reduce the in hand cash of business.
I would recommend continuing the program as over the years there is an increase in
operating working capital of the business.
The sales revenue has also increased over the year.

IMT Ceres

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Name Sukanya Saha

Trend in Cash flow from Operating activity- Decreasing trend

Operating Working Capital/Sales Ratio

DSO, DPO and DIO

Accounts Receivable 3,485 4,405 6,821 10,286 14,471

2002 2003 2004 2005 2006E

Sales 24652.19 26796.93 29289.04 35088.27 42597.16

Net Profit 1190.712 1292.958 1278.969 1487.877 1534.087

The trend of Return on Equity is decreasing.

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